Self-employed mortgages were all but eliminated in Canada a couple of years ago. But now, there’s a model that’s working in the U.K., and it’s got brokers thinking about whether or not it’s something that would also work in Canada. And there’s one in particular that thinks it’s really something we should consider.
“Today there are more contract employees than ever before and that’s just going to continue to grow as corporations try to limit their liability by having employee pension plans, benefits and payout packages on termination.” says Steve Garganis of Mortgage Intelligence. “The reality is a great many of these contracts are renewed or ongoing and this is going to be a continuing trend; it’s not going to go away.”
He thinks we should be following Kensington, a specialist lender in the UK, that’s going to be offering a particular product for contractual workers that have been working with the same employer for 12 months. The offer began on Monday, January 13, and offers borrowers a mortgage that starts at a rate of 3.44 per cent. It can go higher than that though, as that rate is determined by taking the borrower’s weekly income and multiplying it by 46.
Alex Hammond, head of marketing and communications for Kensington, said this about their product, “We have the underwriting expertise to make sensible lending decisions for people who work on a contract basis and will be charging contractors the same rate of interest as permanent staff.”
And Garganis said that it’s something we need here in Canada, especially at a time when lenders are becoming much more stringent in their lending practices.
“There is definitely a market for it and there is definitely a need for it. It sounds like our business-for-self programs which are not what they once were, they’re almost non-existent, quite frankly,” says Garganis. “They’re not risky at all; in fact there is no evidence to support the claim that they have higher arrears or pose a higher risk.”
However, he does believe that there’s room for that to happen in the Canadian marketplace, he says.
“Things happen in cycles and we’re in a cycle now of tightening; lots of pressure from the government, prices are at all-time highs so they want to slow the market using any means they see fit,” he says. “Unfortunately, the collateral damage is going to be innocent victims: People who can afford to pay their mortgage and are being shut out, they’re not able to get a mortgage.”
But, he does admit that it’s going to be some time before we get there.
“We’re going to have to wait a few years for things to calm down, less concern about the potential housing bubble and once that goes away it will go back to the way things were before. I don’t know how long it’s going to take, I’m pondering that myself; two years, four, I don’t know.”